SHANGHAI stocks edged up in the morning session after the Chinese central bank executed seven-day reverse repurchase agreements to boost market liquidity yesterday.

The Shanghai Composite Index added 0.1 percent, or 2.48 points, to 2,442.56, extending the week's gains. Turnover stood at 51.1 billion yuan (US$8.14 billion) by the noon break.

The People's Bank of China injected 65 billion yuan into the interbank market yesterday through the reverse repurchase deals with selected banks. Under such arrangement, the central bank lends the capital to banks with their bills as collaterals.

Market watchers said the operation signals a switch in monetary policy in the short run.

"Market liquidity is at a reasonable level at the moment, the unusual operation is aimed at supplementing short-term liquidity," said Shi Lei, analyst at Ping An Securities, today on his microblog.

Another analyst at China Merchants Bank, Liu Junyu said, "A cut in reserve requirement ratio is the primary tool to stimulate credit growth. However, after the reserve repurchase, expectations for a further cut in reserve requirement are dispelled."

Lenders were mixed. The nation's biggest lender, Industrial and Commercial Bank of China, gained 0.5 percent to 4.38 yuan by the noon break. China Merchants Bank edged down 0.1 percent to 12.34 yuan, while China Minsheng Banking Co, retreated 0.7 percent to 6.75 yuan.

In the mean time, concerns about accelerating inflation in April also damped expectation for proactive easing by the government in the near future.

A number of research institutions said the Consumer Price Index may have risen between 3.2 percent and 3.5 percent year on year in April, a slower pace compared to 3.6 percent in March, but still at a high level, the Shanghai Securities News reported today.

Source:shanghaidaily